Despite growing competition from Google, social network kingpin Facebook doubled its revenue in the first half of 2011, raking in US$1.6 billion to bolster company growth before its rumored IPO, according to a Reuters report.
Earnings from the privately held company aren’t confirmed, but the world’s largest social network reportedly posted a net income of nearly $500 million to start off 2011.
The company that started in CEO Mark Zuckerberg’s college dorm room in 2004 doesn’t show any signs of stopping. Its latest competitor, Google’s attempt at a social network called “Google+,” saw unprecedented growth in its first month, but the initial buzz surrounding the search engine’s endeavor seems to have died down.
Even though Google+ brought in around 25 million users relatively quickly after its inception, it’s nowhere near the 750 million Facebook can claim. Smaller and older competitors like LinkedIn and MySpace don’t come close either, making Facebook highly attractive in the eyes of display advertisers and leading to more questions about just how much the company is worth.
Facebook didn’t respond to the E-Commerce Times’ requests for comment.
Ahead of the Curve
Though social network competitors have crept up as online contact becomes a primary form of communication for more people, none have had the lasting impact or widespread user base that Facebook has, thanks in part to its ability to keep updating its features and capabilities.
After opening the network to anyone with an e-mail account — instead of limiting itself college students or faculty — the site saw steady growth in domestic and overseas users. Facebook also began adding interactive elements like photo sharing and games to the user experience.
The company is expected to launch an interactive music playing feature on the site in a partnership with music provider Spotify. It’s also never stopped aggressively recruiting talent from all over the tech world, as evidenced when Facebook picked up innovative e-book designers Push Pop Press, presumably to continue improving the interface.
Raising the level of engagement with features, the interface and apps also increases the amount of time the users stay on the site and the frequency at which they visit, making Facebook a prime spot for ads. It’s estimated that the social network takes in more in display ad revenue than Google, Yahoo and Microsoft combined.
Still, the social networking phenomenon is a new one, and like other sectors of the blooming tech industry, it has room to grow.
“Social networking as a whole is still in its infancy compared to what we could possibly do with it. As this moves from being a communication tool to something more integrated in our lives, maybe combined with e-commerce, mobile devices or an augmented reality, then you can never really predict what’s coming next,” Jim McGregor, research director at In-Stat, told the E-Commerce Times.
Even Facebook can continue to grow. Although it’s added plenty of global users, worldwide Internet usage is still sitting at just about 30 percent, so there is room for growth abroad, especially considering its loyal user base and notoriety.
“Facebook has a lot going for it. It has millions in investments from heavyweights like Goldman Sachs, it has amazing user growth and revenue growth, and it’s got room for more,” Lee Simmons, industry specialist at Hoover’s, told the E-Commerce Times.
But it’s also not too early in the networking game to count out competitors or even someone new willing to throw their hat in the ring.
“Could anybody ever top Yahoo? Could anybody top Netscape? Absolutely someone could top Facebook. That comes with transitions in the market. Maybe it would be in the form of a partnership. I wouldn’t even say Google’s out of it, although I don’t think they or anyone else has found the ultimate formula yet,” said McGregor.
Facebook’s reported revenues once again raise a question Wall Street has asked many times before — whether or not the company will go public, and if so, when.
“Facebook is interesting. It’s sort of the 800-pound gorilla that hasn’t come to the market yet. Other tech companies going public are the leaders in their fields but don’t have the impact that Facebook does,” said Simmons.
A recent market trend with tech stocks is to set sky-high valuations, even for unprofitable start-ups, but the volatile market of late and sometimes questionable business models have led to a few delays and lower valuations for tech stocks.
If Facebook’s numbers are as high as reports indicate, however, its solid user base and advertising revenues should guarantee the company a huge dollar amount.
“My suspicion is that when they do decide to file, the valuation is going to be very high. If you look at some of the investments in Facebook just over the last two years, such as Goldman Sachs, that valued it at $50 billion right there. I suspect when it does decide to file, it’s probably going to see at least $50 billion. It’s hard to say if it will go as high as the [estimated] $75 billion, but it definitely won’t be less than [$50 billion],” said Simmons.
What time frame Facebook may select to enter the market, however, is still very much up in the air.
“Right now everyone is playing it by ear. Everyone is kind of waiting to see how the market pans out, and right now it’s being driven more by news and we’re in for a lot more volatility. I wouldn’t be surprised if the IPO gets delayed at least a year,” said McGregor.
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